Noted French economist Jean Pierre Landau has emphasized that central banks, including the Reserve Bank of India (RBI), are unlikely to follow the recent rate cut decision made by the US Federal Reserve. Landau, in an insightful interview, praised the RBI’s handling of monetary policy and financial sector regulation, highlighting India’s ability to manage inflation despite significant external shocks.
India’s Monetary Policy: A Global Standout
“India has one of the most respected central banks in the world,” said Landau. Having worked closely with Indian policymakers, he noted the professionalism and innovation demonstrated by the RBI. Despite the country’s exposure to natural and climate shocks, Landau lauded India’s inflation performance as satisfactory.
“Overall, both in terms of the policy framework and in terms of financial sector regulation, the central bank (RBI) is performing very well,” he remarked, crediting the institution for steering the economy through uncertain times.
Fed’s Rate Cut Not a Blueprint for Global Central Banks
With the US Federal Reserve recently cutting its policy rate by 50 basis points, questions have arisen about whether other central banks, including the RBI, should follow suit. Landau was clear in his view: central banks do not blindly mimic one another.
“As a principle, market analysts tend to see central banks reacting to each other. But that’s not what they do,” Landau explained. He underscored that central banks focus on their domestic economic conditions, weighing inflationary prospects and growth based on their unique mandates.
“Of course, they internalise what other central banks are doing, but that’s only one element in their judgment,” he said, adding, “I don’t expect any central bank, especially the central bank of India, to try to mimic or imitate such a move by itself.”
Landau emphasized that while the Fed’s decision might influence global monetary policy, it would not be a deciding factor for the RBI. “There may be good reason to move interest rates in India, but the Fed’s recent move is just one factor in the decision.”
Inflationary Pressures and the Crude Price Surge
On the issue of inflation, particularly in light of rising crude oil prices, Landau offered a multi-dimensional view. He praised the efforts of central banks, including the RBI, in managing previous global shocks such as the COVID-19 pandemic and the war in Ukraine, which had significant repercussions on commodity markets.
“It is unprecedented in the last 40 years that inflation has been brought down to this extent without recession,” he noted. However, he cautioned that the “last mile” in controlling inflation could be the most challenging, especially with recent geopolitical tensions creating further uncertainty in commodity and food prices.
Global Central Bank Sentiment Post-Fed Cut
Commenting on the overall mood among central banks following the Federal Reserve’s rate cut, Landau indicated that while there is some room for monetary easing, the approach remains cautious.
“Everybody is basically broadly on the same page that there is some room for more accommodation while still being restrictive,” he explained. The general sentiment, he added, is that rates will gradually decline but remain above the neutral level for the foreseeable future, particularly in light of ongoing geopolitical challenges.
Crypto Market and Financial Innovation
Landau also touched on the evolving cryptocurrency market, pointing out the significance of the US Securities and Exchange Commission’s (SEC) decision to allow crypto ETFs. “Whether it’s a good thing or not, I’m not sure,” he said, highlighting the division within the SEC over the decision.
“I think crypto is a very interesting concept, full of innovation,” he remarked, but he expressed reservations about opening crypto investments to the general public. In his view, the cryptocurrency space should remain a testing ground for financial innovation rather than becoming a mainstream investment option.
Landau also praised India’s digitalisation efforts, particularly the success of its Unified Payments Interface (UPI) system, describing it as a model for the world. “India, with its UPI system, is showing the way to the world in this regard,” he said, reflecting on the broader digital transformation in finance.
As central banks globally navigate a shifting landscape, Landau’s insights offer a measured perspective on the complexities of monetary policy, inflation management, and financial innovation.
